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Anton Shoetan, CPA

Should I purchase a vehicle in my business or personal name?

Finance
Buying a business vehicle is a major purchase. There are a variety of factors to consider and evaluate before you make a decision.

What percentage of the vehicle will be used for business vs personal?


If you use your vehicle for both business and personal purposes, you must track and divide your expenses between business and personal use. You can divide your expense based on the miles driven for each purpose. For example, if you drive your car 15,000 miles during the year and 12,000 miles for business use and 3,000 miles for personal use. You can only claim 80% (12,000 / 20,000) of the cost of operating your vehicle as a business expense.

If you plan to use the vehicle primarily for business (i.e., more than 50% of the time) then you can purchase the vehicle under the business name.

Financial perspective

From a financial perspective, are you paying for the business vehicle in cash or financing? If financing, I would request quotes for both options (business and personal). Consider the different terms and interest rates between the two options. 
Paying cash for your business vehicle will cost you less than financing and paying interest on a vehicle loan over time. When you pay cash you have the power to negotiate and purchase the business vehicle on your terms. Additionally, you will not have monthly payments and if the money is invested you will earn interest instead of paying interest over time.

Tax perspective

From a tax perspective, you can deduct the business use of the vehicle either way (e.g., if you personally own the vehicle or if the business owns it). 

There are two methods to deduct vehicle expenses: the standard mileage rate method or the actual expense method. If you qualify for both methods you should calculate your deduction using both methods to see which one gives you a larger deduction. 

Standard mileage rate method

To use the standard mileage rate, you must own or lease the vehicle and you are not allowed to claim any depreciation deductions for the vehicle. The standard mileage rate changes each tax year and is calculated by taking your total business mileage for that tax year times the mileage rate for that applicable tax year.

Additionally, for a vehicle you own you must use the standard mileage rate in the first year the car is available for use in your business. Then, in later years, you can choose to use the standard mileage rate or actual expenses. For a vehicle you lease, you must use the standard mileage rate method for the entire lease period (including renewals) if you choose the standard mileage rate.

Actual expense method

To use the actual expense method, you must determine what it costs to operate the business use of the vehicle. Actual expenses include gas, oil, repairs, tires, insurance, registration fees, licenses, and depreciation (or lease payments) attributable to the total business miles driven in the tax year.

Other vehicle expenses like parking fees, garage rent and tolls attributable to business use are separately deductible whether you use the standard mileage rate or actual expenses.

If you have fully depreciated a vehicle that you still use in your business you can continue to claim your other actual expenses.

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